Wedbush Securities’ Michael Pachter also believes that the price will remain down for the Xbox One.
Microsoft led the NPD numbers back in November and December of 2014 but in January 2015, the PS4 took over the top position again. In our interview with Wedbush Securities’ Michael Pachter, we asked his take on how the Xbox One is going to perform for the remainder of the year, and whether he thinks Microsoft is going to be able to get that momentum back.
“You know, I spoke with Microsoft after the numbers came out in January, and in a not so defensive way, but clearly they were shaken that after the price went back up to $399 that they fell behind again, and they assured me that since they cut the price in mid-month that their box started selling better. I don’t think they know the cadence of PlayStation 4 sales, so I’m not sure that Microsoft can actually gauge whether they outsold PS4 or not, but there was an increase in sales.”
He also believes that the users who bought a Wii all those years back are now probably buying the PlayStation 4 due to Sony’s strong historical record, Microsoft’s rocky start to the current console generation and the Wii U’s lack of software.
“I think it’s fascinating. I really thought that most Xbox 360 owners would lean towards buying an Xbox One and most PS3 owners would lean towards buying a PS4, and that might still actually be the case, but what we have now is we have a bunch of growing up Wii owners. So you know, let’s say boys that were between 6 and 12 in 2006, 2007, 2008 who are now between 7 and 8 years older, whatever that would be, between 13 and 18, and they may not have been in a position to buy both a Wii and an Xbox 360 or a Wii and a PS3.”
“The Wii U is a terrible alternative for someone who can only get one console because it’s got such limited software, and I think that Sony’s just winning that audience. I’m not sure what Sony has done. I know what Microsoft has done wrong, but Sony is clearly resonating better with the guys who were undecided. And I could be wrong, but I think of this much the way I think of people who have historically voted Democratic always voting for Democrats and people who have historically voted Republican voting for Republicans. I think that you just kind of own your console of choice and you will stick with that unless they do something really bad.”
“I think that Microsoft probably screwed up at E3 in ‘13, but they recovered quickly and I don’t think that any gamers still harbor any bad feelings from the DRM that they haven’t implemented. I think that bundling Kinect and making people pay hurt them for that first year, but then they unbundled it and made it the same price as PS4. I still read guys posting on the internet saying “Oh, this is an all-in-one box,” and as a gaming device it is still inferior to the PS4. I suppose that if you look at, you know, DDR3 versus GDDR5 RAM, as if anyone is really taking advantage of all of that, I suppose maybe there’s some marginal difference in quality, but it’s marginal.”
“And again, I think that to get somebody to switch parties politically is tough, to get somebody to switch consoles I think is is tough, so it has to be explained as the Wii audience, as they grow up, is more interested in the PS4 for some reason. Maybe because Sony has been around longer and done a really great job. I mean, Sony has done nothing wrong this cycle at all.”
So when we talk about some of the things that Microsoft has done wrong, one of the things is that same pricing scheme they had for the Xbox One. In the holiday season of 2014, when it first started, they had it for $349 and they had great sales and then they raised it again in January and they brought it down again in the middle of January and it just became “Well, that’s the price right now going forward, I guess, unless we say otherwise.” Should Microsoft firmly confirm this price drop, and if they did confirm a price drop, would this be the one they stick to or would they go for something else?
Pachter believes that the lower price of the Xbox One is here to stay and it will be interesting to see whether this will help sell Microsoft more consoles. In the end, it’s all about Microsoft trying desperately to win.
“Well, their choice of language was fascinating because when they dropped the price in late November they called it promotional pricing, and they said very clearly the day that it dropped that it was going back up on January 3rd. So the day that it dropped, which I think was November 28th or something, it said it’s going back up on January 3rd and it did. On January 15th, when they announced that it was dropping again on the 16th, they called it “special pricing” and they did not put a date in to bring it back up.
“So I think the answer to your question is, Microsoft desperately wants to win. Winning matters more to them than short term profit and I emphasize short term because I think that they understand that the profit stream from an Xbox One owner is a long one, so if you give up fifty bucks of profit now because you price it at $349 instead of $399, you’re going to make that $50 back later because people will buy tons of software.”
“I think that they’re being pretty smart about it. I think they’re being pretty disciplined about it, but yes, I do think the price will stay down. The interesting thing is Sony’s probably not feeling too compelled to cut, so I think Sony’s probably going to stay at $399 and I’m curious to see if the Xbox One does outsell the PS4 at the lower price point because again, holiday was kind of mixed up with a bunch of bundles. We were getting a lot of free software. I don’t think – that Assassin’s Creed bundle was around in January, but I don’t think we’re going to keep getting software. Those bundles kind of are ending.”
Given that Microsoft’s lower price is here to stay it will be interesting to see how Sony responds if the Xbox One outsells the PS4 in the next NPD update. Regardless, the sales difference will fuel competition between the two big gaming giants resulting into better games and services. In the end, it’s a win-win situation for the end consumer.